PSYCHOLOGISTS have known for a long time that economists are wrong. Most economists—at least, those of the classical persuasion—believe that any financial gain, however small, is worth having. But psychologists know this is not true. They know because of the ultimatum game, the outcome of which is often the rejection of free money.

In this game, one player divides a pot of money between himself and another. The other then chooses whether to accept the offer. If he rejects it, neither player benefits. And despite the instincts of classical economics, a stingy offer (one that is less than about a quarter of the total) is, indeed, usually rejected. The question is, why?

One explanation of the rejectionist strategy is that human psychology is adapted for repeated interactions rather than one-off trades. In this case, taking a tough, if self-sacrificial, line at the beginning pays dividends in future rounds of the game. Rejecting a stingy offer in a one-off game is thus just a single move in a larger strategy. And indeed, when one-off ultimatum games are played by trained economists, who know all this, they do tend to accept stingy offers more often than other people would. But even they have their limits. To throw some light on why those limits exist, Terence Burnham of Harvard University recently gathered a group of students of microeconomics and asked them to play the ultimatum game. All of the students he recruited were men.

Dr Burnham's research budget ran to a bunch of $40 games. When there are many rounds in the ultimatum game, players learn to split the money more or less equally. But Dr Burnham was interested in a game of only one round. In this game, which the players knew in advance was final and could thus not affect future outcomes, proposers could choose only between offering the other player $25 (ie, more than half the total) or $5. Responders could accept or reject the offer as usual. Those results recorded, Dr Burnham took saliva samples from all the students and compared the testosterone levels assessed from those samples with decisions made in the one-round game.

As he describes in the Proceedings of the Royal Society, the responders who rejected a low final offer had an average testosterone level more than 50% higher than the average of those who accepted. Five of the seven men with the highest testosterone levels in the study rejected a $5 ultimate offer but only one of the 19 others made the same decision.

What Dr Burnham's result supports is a much deeper rejection of the tenets of classical economics than one based on a slight mis-evolution of negotiating skills. It backs the idea that what people really strive for is relative rather than absolute prosperity. They would rather accept less themselves than see a rival get ahead. That is likely to be particularly true in individuals with high testosterone levels, since that hormone is correlated with social dominance in many species.

Economists often refer to this sort of behaviour as irrational. In fact, it is not. It is simply, as it were, differently rational. The things that money can buy are merely means to an end—social status—that brings desirable reproductive opportunities. If another route brings that status more directly, money is irrelevant.

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I wasn't trying to just get a dig at the expense of the guys.. want2retire. Sorry if you took it that way. I've recently been having a e-mail battle with right-wing sis who pretty much absolutely defends tax cuts of any and all kinds: Business is great - workers are just envious - people in the US are better off the more we turn things over to capitalists - CEOs should make amount$ approaching infinity even if the average joe sees only a one-cent uptick since CEOs "create wealth".

The salient part of the article to me is the confirmation that people (apparently men to a greater extent; interesting but secondary) will operate according to relative wealth rather than absolute wealth .. whether this is rational or irrational!

Economists often refer to this sort of behaviour as irrational. In fact, it is not. It is simply, as it were, differently rational. The things that money can buy are merely means to an end—social status—that brings desirable reproductive opportunities. If another route brings that status more directly, money is irrelevant.

My testosterone level must be low since I do not care about social status.

I've seen this behavior in vendor negotiations and in dealing with service providers. In instances where there isnt a lot of direct cost to the vendor to provide me with a product or service and I offer to either buy theirs for a ridiculously low, but still profitable price...or go with a competitor...I'm occasionally told to go with the competitor.

So the "I'd rather have nothing than a little profitable something" is the result.

Seems theres a need to 'win the game' that trumps lesser gains.

__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.

I've seen this behavior in vendor negotiations and in dealing with service providers. In instances where there isnt a lot of direct cost to the vendor to provide me with a product or service and I offer to either buy theirs for a ridiculously low, but still profitable price...or go with a competitor...I'm occasionally told to go with the competitor.

So the "I'd rather have nothing than a little profitable something" is the result.

Seems theres a need to 'win the game' that trumps lesser gains.

I think this is a different phenomenon than the one originally presented. This happens a Lot with contracting. I will not accept $20 an hour, even if it's money on the side that I otherwise would not have. It is a disservice to my industry and to my future earning potential.

If you don't believe me, just look at the job market now. So many people were willing to "go the extra mile" and "be a teamplayer" by working over 40h per week, and now we're all expected to do it (us non-FIREs) for the same wage we made before. It was a self-defeating move by the workforce.

As for the example, I would definitely turn down the $5. It's insulting. I'd rather have nothing than allow someone to profit that much at my expense.

...that a UVA associate professor and I conducted almost the EXACT same (didn't look at testosterone levels) study with the same conclusions more than 5 years ago. For some reason, however, we didn't end up in the Economist.

...that a UVA associate professor and I conducted almost the EXACT same (didn't look at testosterone levels) study with the same conclusions more than 5 years ago. For some reason, however, we didn't end up in the Economist.

I thought it seemed familiar.

__________________"Knowin' no one nowhere's gonna miss us when we're gone..."

I've seen this behavior in vendor negotiations and in dealing with service providers. In instances where there isnt a lot of direct cost to the vendor to provide me with a product or service and I offer to either buy theirs for a ridiculously low, but still profitable price...or go with a competitor...I'm occasionally told to go with the competitor.

So the "I'd rather have nothing than a little profitable something" is the result.

Seems theres a need to 'win the game' that trumps lesser gains.

Not really.... I had people try and do that to me.... and I said go somewhere else.... the problem is that you would have accepted a lower price and it would get out... all the others you deal with would now want that lower price and you would be screwed.... better to let a few go that push to hard and keep all the big fish that don't...

If you don't believe me, just look at the job market now. So many people were willing to "go the extra mile" and "be a teamplayer" by working over 40h per week, and now we're all expected to do it (us non-FIREs) for the same wage we made before. It was a self-defeating move by the workforce.

In the "old days", where I used to work, salaried employees regularly were paid overtime (this is an oxymoron, because my "OT rate" was actually less than my "straight time rate" do to some strange calculation made by the pay roll department)

Now, folks are told that they are "expected" to work 50 hours a week and is they exceed that, they will be given "compensatory time off", which is capped at 80 hours and must be use in the year it was accrued. With 4 weeks of vacation and 15 holidays (dictated by the union) do you think they are going to let these folks take another 2 weeks off !

I know one person who basically takes the rest of the year off after Thanksgiving !

the problem is that you would have accepted a lower price and it would get out... all the others you deal with would now want that lower price and you would be screwed

That happens all the time, and somehow it doesnt get out. Nobody pays the same price.

Quote:

better to let a few go that push to hard and keep all the big fish that don't...

I was a pretty big fish...5th largest US company by market cap. One company that chose to walk rather than give me a good deal lost their business when a bunch of other companies saw that we had changed products...and they all followed suit. The competitor waived the charges for their software and just charged us for support...and picked up all the other defectors as well. We paid them pretty good money for the next 7 years...not as well as if we'd paid full price for everything...but they made a lot of money and a good profit.

Its all about continued and ongoing repetitive business. But thats not the way its done today...its 'get your big hit now, then dump these bozos, and we'll spend $100M in advertising to get some more of them!'.

Pennywise, pound foolish.

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Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.

This might help me understand a family experience, which I hope I can describe in a few words. As you read this, keep in mind that my DW handles the finances in our family.

My 17-yo daughter backed out of a parking stall at the mall and hit another car, making a small dent in the door. The other car was old and beat-up, so the additional dent was hardly noticeable, but my daughter dutifully wrote a note with her name and phone number and left the note on the car's windshield. The owner of the car called us, said that she (the owner) had gotten an appraisal to fix the dent, and she wanted us to send her a check for $240. This sparked a difference of opinion between DW and me. I wanted to call the woman, tell her that I knew she wasn't really going to fix the dent but just wanted the money, and tell her that I agreed that she should get some money, but I would be willing send her only $120 (or some other negotiated amount).

DW totally disagreed. She felt that if the woman wasn't going to fix her car, that we shouldn't pay anything. DW wanted to call the woman and tell her that we would write out the check but only to the repair shop after the work was done, not to the owner personally. I explained to my wife that this would cost us $120 more than my approach. My wife totally objected to my approach, with the reasoning that she didn't want the woman to get away with some cash that she wasn't going to use to fix the car. In the end, my wife called the woman, told her that we wouldn't pay her directly, and that we would only pay the repair shop. Of course the woman had the dent fixed, and we had to pay $240.

Evidently my wife would rather pay the full $240 and punish the car owner than pay $120 and let the car owner "pull a fast one" by pocketing the money.

So does this mean my wife is a woman of high testosterone? Or is she just a woman of high principles?

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